Social Security changes expected to affect the young the most

Staying Ahead

The inevitable adjustments won't affect current retirees or take much from people now in their 50s. But younger people have to start thinking about how their lives will change.

Last month, the bipartisan National Commission on Retirement Policy (NCRP) released a comprehensive plan for Social Security reform. It gives you a good look at what's politically possible today.

"To get agreement, our plan had to include four things," says Dallas Salisbury, a commission member and president of the Employee Benefit Research Institute in Washington.

The principles: (1) No increase in payroll taxes. (2) Protection for lower-income workers. (3) An increase in the retirement age, to adjust for the increased longevity expected in future years. (4) An individual investment account, within the Social Security system.

But their plans don't have an acceptable way of paying for current beneficiaries, who depend on your payroll taxes for support.

Nor have they a plan for supporting other clients of Social Security: widows and widowers, orphans, the disabled and the poor -- not to mention the people whose investment accounts do poorly.

A liberal alternative is being championed by Robert Ball, a former Social Security commissioner.

He'd invest half of the Social Security trust fund in stocks, for higher long-term returns. That's the way private pension funds invest, with great success.

With a couple of additional adjustments, Ball says, his plan brings Social Security close enough to solvency, with no extra taxes, no benefit cuts and no increases in the retirement age.

To reach true solvency, however, his plan requires a small benefit cut and a tax increase on the highest earners. Congress isn't likely to buy this tax.

Ball doesn't like using part of the Social Security tax for private investment accounts. This would vary Social Security benefits, based entirely on chance.

Lucky people, retiring during a good market for stocks or bonds, would get a larger check. Unlucky people, retiring after a market drop, would get less. You couldn't plan. But the public might not care, as long as most beneficiaries did well. "The vast bulk of people will be winners," says commission member Rudolph Penner, a senior fellow at the Urban Institute in Washington.

The NCRP plan raises the Social Security retirement age to 70 by 2029, and the age for early retirement to 65 by 2017. Today, you get early retirement at 62 and full retirement at 65 (rising to 67 by 2022).

To make Social Security solvent without adding taxes, the commission's plan makes other cuts in future benefit growth. These cuts, however, wouldn't affect most lower-income people.

Instead, they're applied to people with average and above-average earnings, who rely less on Social Security for support.

The commission doesn't yet have a full analysis of how these cuts would affect the divorced, orphans, the disabled and young widows and widowers who haven't had time to build substantial private accounts.

The poorest would get some protection. But those with average earnings would get less than the law provides for now.

An NCRP proposal sure to provoke some bloody yells would cut the retirement benefit paid to one-earner couples. Instead of adding 50 percent for a spouse at home, the commission would add just 33 percent.

However the reforms come out, Social Security will be worth less in the future.

Individuals in their mid-40s and under will have to save more money, work longer or both, before they can retire. But their Social Security taxes won't rise.